The world will watch the ASX deal

The creation of ASX-SGX, a dominant regional exchange business, comes as
ASX Ltd
is attempting to fend off Chi-X, a rival exchange which has been approved to set up in Australia.

Chi-X, an affiliate of Japanese broker Nomura Securities, has been granted in-principle agreement from the Australian Securities and Investments Commission to open an electronic exchange next year, expected to come in either the second or third quarter.

Europe-based Chi-X chief operating officer Peter Fowler said the proposed takeover by SGX highlighted the need for greater competition in Australian capital markets and called on regulators to provide clarity and a resolution concerning the rules and regulatory environment for multi-market platforms.

“Exchanges do not own liquidity – investors in the market, from the smallest retail investor to the largest international institution, do," said Mr Fowler.

“Investors will gravitate to markets with the most efficient platform structures and it is important that Australia has a multi-platform environment to encourage cost competition, innovation and greater market liquidity."

The ASX-SGX deal was also likely to trigger interest from other players looking for a foothold in the Asian securities market.

As the market digested Singapore Exchange’s $8.4 billion tilt at ASX Ltd, industry observers said the deal could fuel appetite for corporate activity among global exchanges.

Since 2005 there have been 15 mergers and acquisitions involving securities and commodities exchanges valued at up to $US56 billion ($56.2 billion), with the bulk between 2006 and 2008.

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SGX’s takeover of ASX was the first major deal between exchanges in the Asia-Pacific region.

“It’s a really good commercial deal, it’s the first major deal in Asia, the world will be pretty interested in it," said New Zealand stock exchange chief executive officer Mark Weldon.

“I think they will look at this very positively and you might see a few other things happen. Often when you move from a position of status to where someone has made a pretty dramatic move, it’s not the only move."

Market veteran Brian Price expected the proposed merger would be “on the agenda" of the boards of the world’s largest exchanges.

Mr Weldon, who tried to set up a rival to ASX, applauded the tactics of the exchange’s management in devising the well-timed deal ahead of the arrival of competition.

“
Robert Elstone
and
David Gonski
have run a very tight ship they have aggressively managed costs to keep margins very high.

“They have played outstanding defence on the competition front in Canberra and achieved a real delay in that area. They are extracting a very, very good premium in this deal – which looks outstanding for shareholders," said Mr Weldon.

Although the takeover was dependant on a raft of regulatory approvals from the Australian government, there was an expectation that the deal would receive support from the competition regulator.

“David Gonski is an incredibly well-connected and smart, respected man and you would be stunned if this didn’t have tacit approval already from Canberra," said NZX’s Mr Weldon. “You would have thought the details of the merger would leave the stakeholders in the Australian capital market reasonably well set or at least neutral."